MSB

March 15, 2017

As compliance professionals, it's so hard being the good guy all of the time because there are so many things to focus on. In the movies, the superhero has to choose between saving their partner, saving themselves, or completing the mission. And of course, in the movies the superhero ends up somehow successfully doing all three. Well, despite the common adage that "life isn't always like the movies", we can rise like the superhero by prioritizing our efforts and focus on the issues that our regulators are focusing on, specifically the CFPB and NCUA.

About three weeks ago, the CFPB issued its monthly report on consumer complaints. Based on the report's findings, consumer debt collection continues to be a clear focus of the CFPB, as well as credit reporting.

Debt Collection- For a few years now, debt collection has been the source of most complaints submitted to the Bureau, and this report continues to highlight that. Debt collection was the most complained about product submitted in January 2017. Generally, consumers complain that collectors contacted them for debts that they do not owe; harass them by making multiple calls weekly or daily, or using false, deceptive, or misleading statements in connection with the debt collection; threatened to take illegal actions, such as arrests or seizure of the consumer's property; and impermissibly contacted or shared information with others, such as employers. For more on the CFPB's efforts on debt collection practices, check out my previous blog on the topic here.

Credit Reporting- The CFPB notes that the most common issues identified by consumers are problems with incorrect information on credit reports, which accounted for 76% of the complaints. Other issues identified include, the process for blocking and removing information resulting from identity theft. The report states that consumers report notifying furnishers of information of identity theft with appropriate documentation, only to have accounts verified as accurate. Notably, just two weeks ago, the Bureau issued its Supervisory Highlights which focuses on consumer reporting and concludes that the Bureau's work in the consumer reporting market is ongoing and remains a high priority. Amongst its findings, the CFPB observes:

Weaknesses in compliance management systems, such as weak oversight by management and the Board of Directors over furnishing practices; failure to update policies and procedures; weak training of employees who conduct furnishing and dispute handling operations; and weak monitoring and corrective action.

Absence of policies and procedures designed to: handle and investigate direct disputes from consumers; facilitate the creation and retention of documentation to substantiate final dispute decision; prevent duplicative or mixed reporting.

False representations by financial institutions in order to obtain a consumers' consumer report. For example, making false statements that a consumer had applied for a loan, and thus the institution had a permissible purpose to obtain the report.

These reports can be a useful tool, as they can help credit unions evaluate which products and services are more problematic and thus, should be addressed in order to avoid or mitigate regulatory risks.

And let's not forget about our beloved…NCUA! The Supervisory Priorities for 2017 may be helpful in prioritizing our efforts. Indeed, we referenced the 2017 priorities in a previous blog back in January. Generally, the guidance informs credit unions of NCUA's primary areas of focus for 2017 as an effort to help prepare for this year's examination process. As a reminder, this year's supervisory focus will be on:

Cybersecurity- NCUA will continue to evaluate credit unions' cybersecurity risk management practices and encourages credit unions to use the Cybersecurity Assessment Tool (CAT) to bolster their security and risk management processes. In case you may have missed it, NAFCU members can take advantage of a user-friendly workbook version of CAT here.

Bank Secrecy Act Compliance- In 2017, NCUA field staff will focus on credit unions' relationship with money services businesses (MSBs) and other accounts that may pose a higher risk for money laundering. NCUA expects credit unions to conduct appropriate due diligence, analysis, and monitoring when offering services to MSBs. NCUA Letter to Credit Unions 14-CU-10 provides guidance on how credit unions can identify and mitigate risks associated with MSBs.

Internal Controls and Fraud Prevention- NCUA field staff will continue to assess the adequacy of internal controls, as well as procedures and processes designed to prevent and control fraud.

Interest Rate and Liquidity Risk- NCUA has started using a revised interest rate risk supervisory tool and new examination procedures to assess interest rate risk management practices. For more information about the revised tool and new procedures, see NCUA Letter to Credit Unions 16-CU-08. Also, examiners will focus on the relationship between interest rate risk and liquid risk.

Commercial Lending- As you know, NCUA revised its Member Business Loans/Commercial Lending rule, which became effective January 1, 2017. Field staff will evaluate a credit union's commercial loan policies and procedures and assess the risk management processes associated with managing a commercial loan portfolio. NCUA warns that credit unions should be prepared to provide documentation to support management's ability to monitor and manage its commercial loan portfolio. For more information, see NCUA Letter to Credit Unions 16-CU-11.

Consumer Compliance- NCUA field staff will examine credit unions' compliance with the Military Lending Act (MLA), as well as the Servicemembers' Civil Relief Act (SCRA). For more information on the MLA, see NCUA Letter to Credit Unions 16-CU-07. NCUA Letter to Credit Unions 09-CU-12 provides guidance on complying with the SCRA. In particular, this enclosure provides a good overview of the SCRA requirements.

This month's Compliance Monitor, written by my colleague André Cotten, analyzes the NCUA's supervisory priorities for 2017 in more detail and highlights NCUA and NAFCU resources on each issue. If you haven't checked it out already, please do!

"S..S..S.. on my chest 'cause I'm ready to save 'em." Mantra of the year, Yes!!! Be your credit union's superhero by focusing on the regulators' priorities to help save time, lives, and money.

As always, if you have any questions, please feel free to reach out to us. We are here for you!

July 27, 2016

Currently, about 20 states and the District of Columbia have legalized certain marijuana-related activity. For example, Alaska, Colorado, Oregon, Washington, and Washington D.C., have legalized recreational and medicinal marijuana for adults. Moreover, it is anticipated that more states will enact laws allowing for the legalization of marijuana. In light of these developments, it is important for credit unions that offer, or are thinking about offering, marijuana related business accounts to be reminded of their compliance obligations particularly under the Bank Secrecy Act (BSA). Warning, the regulators are not making it easy here.

As an initial matter, marijuana is still illegal under federal law. That said, in 2014, the Financial Crimes Enforcement Network’s (FinCEN) created strict guidelines for credit unions seeking to service marijuana-related businesses. The guidance set forth new due diligence requirements for opening an account for a marijuana-related business. As part of its member due diligence, a credit union deciding to provide financial services to these businesses is required to:

Verify with the appropriate authorities whether the business is duly licensed and registered;

Review the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;

Request from state licensing and enforcement authorities available information about the business and related parties;

Develop an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational members);

Conduct ongoing monitoring of publicly available sources for adverse information relating to the business and related parties;

Conduct ongoing monitoring for suspicious activity; and

Update information obtained as part of member due diligence on a periodic basis commensurate with the risk.

Along with the above requirements, as part of its due diligence, a credit union is expected to consider whether a marijuana-related business implicates any of the eight priorities defined by the DOJ, in the infamous “Cole Memo”. The Cole Memo notes that the DOJ is committed to prosecuting any individual or entity that interferes with any of its eight delineated priorities including:

Preventing proceeds from the sale of marijuana from going to criminal enterprises, gangs, and cartels;

Preventing state-authorized marijuana activity from being used as pretext for the trafficking of other illegal drugs or other illegal activity.

The DOJ issued a supplemental memo the same day FinCEN issued its guidance. The memo reiterates the DOJ's 2013 position and generally reaffirms FinCEN's guidance. In short, credit unions are expected to monitor and ensure marijuana-related businesses do not violate the eight priorities set forth in the Cole Memo, as well as stay in compliance with the member due diligence requirements outlined by FinCEN.

If you thought that was it, there is more. SAR filing obligations remain! While some states allow businesses to sell marijuana, federal law still makes it a crime. Thus, credit unions must file a SAR on activity involving a marijuana-related business. Credit unions are advised to review the guidance relating to SAR reporting and filing requirements, as well as some of the red flags to look out for.

And there’s more- the CTR. Consistent with BSA/AML reporting requirements, credit unions are also required to file a CTR in connection with marijuana-related businesses. And importantly, a business engaged in marijuana- related activity is not eligible for a CTR exemption under 31 C.F.R. 1020.315(b)(6). See, FinCEN Guidance, 2014-G001.

And there’s more….. No, that’s it…for now.

On a final note, it is worth noting that while FinCEN seems to have given a pass to credit unions interested in banking marijuana-related businesses, so long as the above conditions are met; and while, NCUA has instructed its examiners to follow the guidance, other hurdles make servicing these businesses challenging and unclear. Aside from the additional regulatory requirements and associated costs to participate in this activity, credit unions thinking about exploring this opportunity cannot avoid the fact that marijuana is still technically illegal- federally speaking. The guidance doesn’t address the legal issue of whether a credit union is violating federal law in providing services to marijuana businesses. Moreover, credit unions that bank marijuana-related businesses may not have access to the Federal Reserve System, as illustrated in the case of Fourth Corner Credit Union in Colorado. The credit union sued the Kansas Federal Reserve Bank after it refused to open an account for the credit union. In dismissing the case earlier this year, the court held that it could not use its authority to require the Fed to facilitate a federal offense. The credit union filed a separate action against NCUA for not providing it with federal share insurance. Apparently, NCUA had concerns over the credit union’s ability to mitigate the risk of banking only marijuana businesses.

To learn more about marijuana-related businesses, the compliance risks, and what your credit union can do to mitigate those risks, come join us at NAFCU’s BSA Seminar in New Orleans from October 24 – 28. In addition to learning more about marijuana-related businesses, you can expect a full week of everything you’ve ever wanted to know about BSA. Check out the full agenda and sessions. We have limited seating – so register now!

March 18, 2016

This week NAFCU hosted its annual Regulatory Compliance School, focusing on the most important regulatory compliance issues facing credit unions. Today’s session will cover the Bank Secrecy Act (BSA) and OFAC (Office of Foreign Assets Control) regulatory framework. However, attendees seemed all too anxious and could not wait to ask their BSA/AML related questions- and understandably so. With an increase in enforcement actions for BSA/AML violations, ongoing OFAC sanctions and impending rules on customer due diligence, credit unions, and other financial institutions, are working hard to keep up with their compliance requirements under the BSA/AML regime. Today’s “FAQs” were inspired by the many BSA/AML related questions and concerns raised throughout the week.

Q: Does a credit union have an obligation to reconcile conflicting identification information provided by a member? We have a member who recently filled out a change of address form, and the SSN he put down is completely different from the one he gave to open this account. Is there any responsibility on the credit union’s part to take any action concerning this discrepancy?

A: Yes, the credit union does have an obligation to address any discrepancies as it pertains to identifying information. Generally, before opening an account for a customer, the credit union must be able to form a reasonable belief that it knows the true identity of the customer based on the information gathered. The conflicting information may have been made in error. In any event, the CIP procedures must specify how the credit union will resolve the discrepancies. If the information is indeed conflicting and can’t be reconciled, the credit union may have an obligation to file a SAR.

Each credit union must have a written CIP that allows it to form a reasonable belief that it knows the true identity of each customer. The CIP must contain procedures for opening an account that specify the identifying information that will be obtained from each customer. The credit union must obtain, at a minimum, the following four pieces of information from the customer prior to opening an account:

Name

DOB for individuals

Address

Identification Number

In addition to gathering the four pieces of information outlined above, the credit union is required to verify the identity of the customer using the information gathered. In verifying the information, the credit union may use documents and/or non-documentary methods, if its CIP procedures allow for that. If there are discrepancies in the information, this may create a challenge in the credit union’s ability to form a reasonable belief that it knows the true identity of a member. The CIP procedures should outline steps the credit union will take to properly, and more accurately, identify an individual. The conflicting information may have been made in error. In any event, the CIP procedures must specify how the credit union will resolve discrepancies using documents and/or non-documentary information. This may include calling the member to address inconsistencies, relying on other sources such as public databases, or checking references with other banks and/or credit unions. If the information is indeed conflicting and can’t be reconciled, the credit union may have an obligation to file a SAR. Also note that the credit union is well within their right to put the account on hold while it reconciles the information.

Q:Can a credit union accept a current passport instead of a taxpayer identification number or social security number at account opening?

A: Generally, credit unions must obtain an identification number before opening an account for a prospective member. For US persons, this would be a taxpayer identification number. For non-US persons, a current passport would suffice. It appears, however, that a credit union may accept other forms of ID if its CIP procedures provide for that, especially where the customer has applied for a taxpayer identification number, but has not yet received one. Generally, before opening an account for a customer, the credit union must be able to form a reasonable belief that it knows the true identity of the customer based on the information gathered. The relevant rules can be found in 31 CFR 1020.220.

Before opening an account for a customer, a credit union must collect identifying information, including an identification number. For a U.S. person, this will be a taxpayer identification number. For a non-U.S. person, one or more of the following will be acceptable: (i) a taxpayer identification number; (ii) passport number and country of issuance; (iii) alien identification card number; or (iv) number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.

The rule does make an exception for individuals who are applying for a taxpayer identification number. According to the rule, a credit union’s CIP may include procedures for opening an account for someone who has applied, but not received a taxpayer identification number. This may include accepting other forms of identification number, including a current passport. However, the procedures must ensure that the individual obtains the taxpayer identification number within a reasonable period of time after the account is opened.

(B) Exception for persons applying for a taxpayer identification number. Instead of obtaining a taxpayer identification number from a customer prior to opening the account, the CIP may include procedures for opening an account for a customer that has applied for, but has not received, a taxpayer identification number. In this case, the CIP must include procedures to confirm that the application was filed before the customer opens the account and to obtain the taxpayer identification number within a reasonable period of time after the account is opened. 31 CFR 1020.220(a)(2)(i)(B)(emphasis added.).

Also, the rules provide credit unions with the ability to verify identification through non-documentary methods. The credit union’s CIP must specify the situations where a credit union would use non-documentary methods to verify a customer’s identity and how to handle them, including when a customer doesn’t have all the necessary documents at the time he/she comes in to open the account.

Q: Is a credit union required to file a CTR where a member withdraws $9,500 in cash from a rep payee account and $700 from his personal account on the same day?

A: The answer to your question can be found in Treasury’s BSA/AML regulations, 31 CFR 1010. Yes, in this situation, the credit union is required to file a CTR because, although there were multiple transactions, the transactions: (i) resulted in a cash withdrawal in excess of $10k; (ii) occurred during the same business day; and (iii) were made by the same person.

31 CFR 1010.311 requires that a credit union report cash transactions in excess of $10,000 during the same business day. Indeed, the rule states:

Each financial institution other than a casino shall file a report of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of more than $10,000, except as otherwise provided in this section. 31 CFR 1010.311 (emphasis added.).

Moreover, the amount over $10,000 can be either in one transaction or a combination of cash transactions. The credit union should treat the multiple transactions as a single transaction if the credit union knows that the transactions are by the same person. The rule provides:

(b) Multiple transactions. In the case of financial institutions other than casinos, for purposes of the transactions in currency reporting requirements in this chapter, multiple currency transactions shall be treated as a single transaction if the financial institution has knowledge that they are by or on behalf of any person and result in either cash in or cash out totaling more than $10,000 during any one business day (or in the case of the U.S. Postal Service, any one day). Deposits made at night or over a weekend or holiday shall be treated as if received on the next business day following the deposit. 31 CFR 1010.313 (b)(emphasis added.).

Here, although the first cash withdrawal of $9,500 was made from a rep payee account, and thus was not his own personal account and not his own personal funds, the aggregate amount withdrew on that day was in excess of $10,000 and was made by the same person. The credit union was asked to give a single person more than $10,000 in cash on a single day. The fact that the transactions involved multiple, or different, accounts is irrelevant. Accordingly, the credit union should file the CTR with FinCEN.

Generally, if the credit union gets an “OFAC” hit, the credit union needs to confirm that the individual that was flagged is indeed the individual on the SDN list. Treasury has a hotline dedicated to providing assistance with making a determination if the person is the same. If the person or entity is indeed the same included on the SDN list, the credit union cannot open the account; but rather must block the transaction and account, and also report the blocked transaction/account to OFAC.

While not required by specific regulation, NCUA expects that a credit union will establish and maintain an effective, written OFAC compliance program commensurate with its OFAC risk profile. Amongst other things, the policies, procedures and processes should address how the credit union will identify and review transactions and accounts for possible OFAC violations. The policies and procedures should also define the credit union’s criteria for comparing names provided on the OFAC “SDN” list with the names in the credit union’s files or transactions and for identifying transactions or accounts involving sanctioned countries. Furthermore, the policies and procedures should address how the credit union will determine whether an initial OFAC hit is a valid match or a false hit.

Q: Where can I go for assistance in developing our BSA/AML risk-based model? The rules don’t say anything. I’ve checked the FFIEC BSA/AML examination manual and it doesn’t say much on how the risk based model program should look like.

A: Honestly, the guide or the rules will not go into that level of detail. Here’s the reason. Generally, governments around the world feel that the risk-based approach is preferable to a more prescriptive approach in the BSA/AML space because it is:

Flexible- AML/BSA risks vary across jurisdictions, customers and products; and

Products and Services- What products and services are you offering that may be vulnerable to money laundering? Online banking? Private banking? Correspondent banking? Wire transfers?

Geographical Location- In what countries do your members reside and what are their countries of citizenship? Where are your corporate customers headquartered and where do they conduct their business? Are you engaging in transactions involved with countries included on any government lists?

Generally, some member types , products and services, and geographical locations pose higher risks than others, and thus your program wants to properly identify those and tailor its monitoring accordingly.

As indicated above, we received a substantial number of BSA/AML inquiries. Indeed, compliance with the BSA/AML rules remains a top priority for financial institutions. NAFCU is here to assist you as you navigate through the rules and will keep you abreast of emerging challenges, and regulatory developments. In fact, the industry is still awaiting FinCEN’s final rule on Customer Due Diligence and beneficial ownership requirements, which is expected this year. We will keep you posted.

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NAFCU’s new BSA Seminar + Certification is Here!

We’ve had hundreds of requests from credit unions to provide more BSA training, and I’m excited to announce, it’s here. We’ll be holding our first in-person, BSA Seminar in New Orleans October 24 – 28. If those dates and location sound familiar to you, it’s not déjà vu. We’ll be running this BSA Seminar concurrently to our Regulatory Compliance Seminar. While they are two separate educational events, the networking aspects will be co-mingled, making it an awesome way to build your network of credit union and BSA professionals from around the country.

You can expect a full week of everything you’ve ever wanted to know about BSA, but didn’t have time to ask. It’s designed for just credit union professionals. You’ll find no erroneous “bank” information that doesn’t apply to credit unions. Check out the full agenda and sessions.

This seminar, and the certification, is an excellent way to demonstrate to NCUA and FinCEN you’re dedicated to compliance and to protecting your credit union against financial crime. It was designed by NAFCU’s Director of Education Devon Lyon, former director of BSA at State Department Federal Credit Union – so the curriculum is extremely relevant at both a strategic and tactical level. You’ll walk away ready to master your AML responsibilities. And of course, it fulfills your yearly BSA training requirement!

January 05, 2015

Last month, the NCUA issued a supervisory letter regarding money services businesses (MSBs). The supervisory letter does three things: First, the supervisory letter gives background information on MSBs, explains how MSBs pose risk on credit unions, and lists expectations for credit unions. Second, the supervisory letter details exam procedures. Credit unions working with MSBs will want to review this section of the supervisory letter before an examination. Last, the NCUA lists additional guidance documents relevant to MSBs, including supervisory guidance issued by the Federal Financial Institutions Examination Council. While I believe this supervisory letter is extremely important and insightful to credit unions, I will not be analyzing the entire letter in this blog post. I can’t, there is too much information. Instead, I will only cover the first part of the supervisory letter as it relates to its guidance on determining the risk associated with MSBs.

Before talking about risk, it is helpful to discuss the definition of a MSB. MSBs are transactional businesses that include check cashers, prepaid card providers, foreign currency dealers, money transmitters, and money orders and travelers checks issuers. See31 CFR 1010.100(ff). While the NCUA acknowledges that MSBs provide valuable services to consumers, the cash-intensive nature of MSBs pose elevated risk for potential money laundering activities. Thus, where elevated risk activity is present, credit unions must “exercise heightened due diligence by establishing monitoring and controls to properly assess, minimize, and manage the risk of money laundering.”

All types of financial institutions have struggled with determining the type of risk associated with MSBs. In recent months, some financial regulators have pressured financial institutions to cut ties with these legally-run business to reduce risk and operational costs (see operation choke point and this blog post). One major issue with MSBs is that not all MSBs pose the same level of risk. For instance, the amount risk associated with each MSB will depend on its size, the primary nature of the business (i.e., a grocery store that offers check cashing will have less risk when compared to a standalone check cashing business), its recordkeeping practices, the frequency of cash transactions, identification requirements, customer base, and other factors. Thus, each MSB will require a different level of due diligence based on the credit union’s review and assessment.

What makes the NCUA’s supervisory letter so important is that it lists several types of factors that credit unions should consider when working with MSBs. Below are some examples of factors the NCUA believes credit unions should consider when assessing risk in MSBs:

Examples of potentially higher risk indicators:

The MSB allows customers to conduct higher-amount transactions with moderate to high frequency;

The MSB offers multiple types of money services products;

The MSB is a check casher that cashes any third-party check or cashes checks for commercial businesses;

The MSB is a money transmitter that offers only, or specializes in, cross-border transactions, particularly to jurisdictions posing heightened risk for money laundering or the financing of terrorism or to countries identified as having weak anti-money laundering controls;

The MSB is a currency dealer or exchanger for currencies of jurisdictions posing heightened risk for money laundering or the financing of terrorism or countries identified as having weak anti-money laundering controls;

The MSB is a new business without an established operating history; or

The MSB is located in an area designated as a High Intensity Financial Crime Area or a High-Intensity Drug Trafficking Area.

The MSB offers only a single line of money services business product (for example, only check cashing);

The MSB is a check casher that does not accept out-of-state checks;

The MSB is a check casher that does not accept third-party checks or only cashes payroll or government checks;

The MSB is an established business with an operating history;

The MSB only provides services such as check cashing to local residents;

The MSB is a money transmitter that only remits funds to domestic entities; or

The MSB only facilitates domestic bill payments.

The supervisory letter also lists risk mitigation factors:

Proper identification of MSB relationships

Adequate assessment of potential risks

Adequate understanding of the business model and activity of the MSB

Adequate and ongoing due diligence relative to the risk assessed

Adequate and ongoing suspicious activity monitoring

Adequate staffing, expertise, and resources

Credit unions working with MSBs, or considering working with MSBs, should review the supervisory letter in its entirety. While the supervisory letter stresses the importance of due diligence, credit unions should also remember that the NCUA has repeatedly stated that “the BSA does not require credit unions to serve as a regulatorof any type of MSB account.”

December 31, 2014

With 2014 coming to an end, I thought I'd put on your radar some of the more recent items released by the National Credit Union Administration (NCUA) during this very busy holiday season.

MSB Exam Guidance from the NCUA. For sake of not bogging you down on New Year’s Eve, I won’t be covering this guidance in any detail here (but we’ll be sure to do so in a very near future blog post). What I do want to do is put it on your radar in case you missed it during the busy holiday season.

Just briefly, what is this guidance? NCUA released Letter to Credit Unions 14-CU-10 (“letter”) to provide guidance to credit unions that provide or intend to provide account services to a money service business (MSB). In the letter, it discusses what an MSB is, the potential risks posed by MSBs, and how a credit union can mitigate those risks. Moreover, the letter advises credit unions to review the enclosed examiner guidance – Supervisory Letter No. 14-05 – because NCUA’s field staff have been provided this examiner guidance and will use it to evaluate credit unions that provide account services to MSBs.

First 2015 Grant Round for Low-Income CUs. With an application period between February 2 and March 3, 2015, NCUA is inviting applications for low-income credit unions interested in providing staff training or hiring interns through use of funds from the Community Development Revolving Loan Fund. NCUA has stated that it will provide at least $360,000 in funding during this first grant round in 2015, which will cover more than 100 requests from low-income credit unions for internships or staff or volunteer training programs. If you are designated as a low-income credit union, check out the NCUA’s announcement here for more information and how to apply.

Latest Videos from the NCUA. In the last couple of weeks, the NCUA has made available the following videos:

New Economic Update Video – posted on December 23rd, this video covers the latest economic activity, the 2015 economic outlook and the performance of federally insured credit unions during the third quarter.

November 14, 2014

The Financial Crimes Enforcement Network (FinCEN) has released not guidance, not an advisory but…….a “statement’ on offering banking services to Money Services Businesses (MSBs). The agency issued the document, FinCEN Statement on Providing Banking Services to Money Services Businesses, to reiterate FinCEN’s expectations for financial institutions’ obligations under the Bank Secrecy Act (BSA) for MSBs.

FinCEN is concerned that MSBs, an important part of the financial system, are losing access to banking services possibly because of increased regulatory scrutiny, the perceived risks presented by MSB accounts, and the costs and burdens associated with maintaining such accounts. Apparently MSB accounts are being indiscriminately terminated or not being opened as an entire category rather than being risk assessed on a case-by-case basis. However, as MSBs provide financial services to people less likely to use traditional banking services and because MSBs play a prominent role in providing global remittance services, FinCEN wants to remind financial institutions that the industry can be served while still meeting BSA obligations. FinCEN’s concern is, “Refusing financial services to an entire segment of the industry can lead to an overall reduction in financial sector transparency that is critical to making the sector resistant to the efforts of illicit actors. This is particularly important with MSB remittance operations.” FinCEN, the Internal Revenue Service and state regulators have all taken steps to increase and strengthen the effectiveness of oversight of MSB BSA compliance with supervision, guidance and examination materials.

The agency does not support the wholesale termination of MSB accounts without regard to the risks presented or the financial institution’s ability to manage the risk as MSBs present varying degrees of risk and not all are high-risk. FinCEN does not expect financial institutions to serve as a regulator of the MSB industry and recognizes it is not possible for an institution to detect and report all potentially illicit transactions that may flow through an institution. FinCEN does expect financial institutions that open and maintain accounts for MSBs to:

Apply the requirements of the BSA, as with all accountholders, based on risk;

Have appropriately designed policies and procedures to assess an MSB’s money laundering and terrorist financing risk; and

Treat each MSB on a case-by-case basis, as with any accountholder.

Financial institution’s that can properly manage relationships and effectively mitigate risks are neither discouraged nor prohibited from providing services to MSBs, regardless of its specific business model.

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